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Systematic Trading Update – July 18, 2022 [Premium Signals]

The weekly systematic trading updates include open positions, new signals, and the performance of six trading strategies. Market Signals or All in One subscription are required to access the report.

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Market Recap and Comments (July 11 – July 15, 2022)

Stocks (SPY) ended the week down 0.9% after a 4.6% drop to the lows of Thursday. Commodities (DBC) plunged 3.8%. Gold (GLD) fell 2%. High Yield Corporate Bonds (HYG) gained 0.8%, while long-duration bonds (TLT) surged 3.2%. Year-to-date, DBC is up 20.6%. TLT is down the most, with a loss of 20.9%. Gold (GLD) is oversold for 8 days in a row, and this is the most since 2016.

Below is a weekly performance recap, including year-to-date performance and a comparison to popular benchmarks and the PSI5 mean-reversion strategy.

Average weekly performance of the five strategies (excluding long/short) -0.4%
Average YTD return including the long-short before the pause. -4.6%
Average YTD return excluding the long-short. -5.5%
Weekly change of S&P 500 index -0.9%
YTD return of the S&P 500 Index (no dividends) -18.9%
YTD return of 60/40 portfolio in SPY/AGG (annual rebalancing) -14.8%
YTD return of PSI5 mean-reversion algo (performance for SPY, QQQ, and IWM) -6.7%

The Dow 30 long-short strategy was paused on March 7, when the positions were closed due to the activation of a volatility switch. The performance of the strategy without the (optional) volatility switch is shown below.

Weekly performance of Dow 30 long-short strategy. -1.0%
YTD return of the Dow 30 long-short strategy. +2.1%
Average weekly performance of the six strategies (including long-short) -0.5%
Average YTD return including the long-short strategy -4.2%

Next week, the allocation to strategies will be at 14%, while 86% will be in cash. Three strategies are out of the market, and the long/short strategy is in (optional) pause mode due to high volatility.

Last week I wrote:

Some traders, including CTAs, and primarily trend-followers, have realized and unrealized gains year-to-date but if the whipsaw continues there is a high probability the profits will evaporate or even turn into losses.

The zero-sum game has intensified, and market participants are rushing to realize profits. Those who close winning trades early risk not making enough to be able to absorb losses in the future. Those who close trades late risk a large drawdown. It is hard to win in this game by trying to guess market moves. Following robust strategies and well-defined risk management are necessary but not sufficient for success.

Comments about performance, positions, and the new signals report follow below.

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